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Reinsurance Group America Inc  (NYSE:RGA)
Q4 2018 Earnings Conference Call
Jan. 29, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day. Welcome to the Reinsurance Group of America Fourth Quarter 2018 Results Conference Call. Today's conference is being recorded.

At this time, I would like to introduce Mr. Todd Larson, Senior Executive Vice President and Chief Financial Officer; and Ms. Anna Manning, President and Chief Executive Officer. Please go ahead, Mr. Larson.

Todd C. Larson -- Senior Executive Vice President and Chief Financial Officer

Thank you. Good morning, everyone, and welcome to RGA's fourth quarter 2018 conference call. With me this morning in St. Louis is Anna Manning, RGA's President and Chief Executive Officer. Anna and I will discuss the fourth quarter results after a quick reminder about forward-looking information and non-GAAP financial measures. Following our prepared remarks, we'll be happy to take your questions.

To help you better understand RGA's business, we'll make certain statements and discuss certain subjects during this call that will contain forward-looking information, including, among other things, investment performance, statements relating to projections of revenues, premiums or earnings and future financial performance and growth potential of RGA and its subsidiaries.

Keep in mind that actual results could differ materially from expected results. A list of important factors that could cause actual results to differ materially from expected results is included in the earnings release we issued yesterday.

In addition, during the course of this call, we'll make comments on pre-tax and after-tax adjusted operating income, which is considered a non-GAAP financial measure under SEC regulations. We believe this measure better reflects the ongoing profitability and underlying trends of our business. Please refer to the tables in the press release and quarterly financial supplement for more information on this measure and reconciliations of net income to adjusted operating income for our various business segments. These documents and additional information may be found on our Investor Relations website at rgare.com.

And now, I'll turn the call over to Anna for her comments.

Anna Manning -- President and Chief Executive Officer

Thank you, Todd, and good morning. As indicated in the earnings release last night, we've reported adjusted operating EPS of $3.46 compared to $2.60 a year ago. For the full year, our adjusted operating EPS was $12.12 versus $10.84 last year.

Looking at the quarter, our underlying business fundamentals were strong and sound as organic premium growth was very good and we were again active on the transactions front and had a strong quarter of capital deployment.

We continue to benefit from earnings diversity a strong bottom line results from EMEA, Asia and Canada offset modest shortfalls in US Traditional and Australia. The shortfall in US Traditional reflects higher Individual mortality claims, while the US Group business showed progress relative to recent quarters and achieved close to breakeven this quarter. Reported premium growth was 12% in the quarter and estimated organic growth on a constant currency basis was 8%. For the year, we achieved organic premium growth of 7% continuing the growth momentum of recent years.

We were very active this quarter in terms of in-force transactions and deployed $160 million of capital. It was one of the more active periods for us in recent years. The deals were broad-based standing all our regions North America, Europe, and Asia and covered Asset-Intensive longevity financial reinsurance and mortality transactions. This brought full year capital deployment to $440 million, our second most active year since 2012. The pipeline for transactions business remains active.

When I think about our overall results for the full year, there were many positives. The continuing premium growth momentum in our organic business, the strong performance in our EMEA and Asia business, the level of capital deployed into in-force transactions and the growth in operating EPS of over 11%, albeit aided by a lower tax rate due to tax reform.

While we continue to see some short-term volatility, our business is in good shape. Our strong excess capital position and the ongoing capital generation power from our business allowed us to commit a total of approximately $725 million to a combination of in-force transactions and share repurchases and still end the year with approximately $1 billion in excess capital. As we look ahead, we remain optimistic about our overall prospects and specifically our ability to achieve attractive financial results.

RGA is well positioned in our markets, we have a proven strategy and a long track record of successful execution. In this macro environment with some additional uncertainty, we operate from a position of strength given the unique nature of our operating model with a focus on biometric business, diversification by product line and geography, a high-quality balance sheet and investment portfolio and less sensitivity to the financial markets. We have a disciplined focus on growing profitable business and effectively managing capital over time, and that was again demonstrated in 2018.

And with that, I'll turn it over to Todd.

Todd C. Larson -- Senior Executive Vice President and Chief Financial Officer

Thanks, Anna. I'll provide a brief financial overview. Our adjusted return on -- our adjusted operating return on equity for the full year was 10.3%, which is within our guidance range of 10% to 12%. Our excess capital position at the end of the period was approximately $1 billion, putting us in a position to be able to continue to fund strong organic growth, execute on attractive in-force transactions and return capital to shareholders through dividends and share repurchases as appropriate.

Moving to investments. The average investment yield excluding spread business was 4.44%, up 6 basis points compared to the fourth quarter of 2017, reflecting higher variable investment income. Our new money rate was 4.10% down somewhat from last quarter. The effective tax rate on pre-tax adjusted operating income was 20.8% for the quarter. For the year, our effective tax rate was 22.5% on pre-tax adjusted operating income within our expected range of 21% to 24%.

Turning to our segment results. The US and Latin America Traditional business reported pre-tax adjusted operating income of $92.4 million, basically flat with that a year ago. Individual mortality experience was unfavorable this quarter and compares to a moderately unfavorable experience a year ago. The US Group business bottom line was within our revised expectations and close to a breakeven result for the quarter, a sequential improvement relative to the two prior quarters. Our US Group remediation efforts are going as planned.

Reported premium growth was 8% and after adjusting for the effects of the modification of existing health treaty that we mentioned last year organic premium growth was 4%. Our Asset-Intensive business reported pre-tax adjusted operating income of $52.8 million this quarter, relatively in line with our expectations. Our financial reinsurance line reported pre-tax adjusted operating income of $19.4 million this period, down modestly from a year ago.

Our Canadian Traditional segment reported pre-tax adjusted operating income of $50.3 million, up from $38.6 million in the prior year period. This quarter reflects favorable individual mortality experience and the contribution of income from two new in-force transactions written during this year. Premiums were up 12% reflecting new business and the execution of these in-force transactions.

Canada's Financial Solutions business which includes longevity and fee-based transactions reported pre-tax adjusted operating income of $1.2 million, down from a year ago with the current period results relatively in line and the prior year reflecting favorable longevity experience.

Switching to Europe, Middle East and Africa. Our Traditional business reported pre-tax adjusted operating income of $15 million, reflecting modestly favorable underwriting experience across most markets. Reported premiums were up 10%, reflecting continued strong business growth across the segment. EMEA's Financial Solutions business which includes Asset-Intensive longevity and fee-based transactions reported pre-tax adjusted operating income of $44.2 million compared to last year's $34.5 million. This quarter's results reflected favorable longevity experience.

Turning to our Asia Pacific Traditional business. Pretax adjusted operating income totaled $33.7 million compared to $27.2 million in the prior year period. Our results this quarter in Asia excluding Australia experienced favorable underwriting margins in most countries across the region. Australia experienced a loss in the quarter primarily reflecting some unfavorable experience in the group business. Reported Asia Pacific Traditional premiums were up 24%, primarily due to growth on new and existing treaties in Asia and some premium catch-ups. Our Asia Pacific Financial Solutions business reported pre-tax adjusted operating income of $2 million versus $0.7 million in the year ago period. The current period results were relatively in line with our expectations.

The Corporate segment reported pre-tax adjusted operating loss of $31 million, greater than the expected range due to costs related to technology and service initiatives. Going forward given the nature of this segment, we do expect some volatility from quarter-to-quarter, but on average, we expect a loss of approximately $25 million. We have historically provided intermediate guidance at this time of year. With that in mind, we expect over the intermediate term, growth in adjusted operating income per share to be in the range of 5% to 8% and adjusted operating return on equity of 10% to 12%. Also for 2019 and thereafter we expect our effective tax rate to fall within the range of 21% to 24%.

In conclusion, the underlying fundamentals of our business were sound in 2018. The benefits of our diversified business continue to allow us to offset underperformance in particular lines of business or segments with strengths in other areas. We are extremely pleased with the higher level of capital deployment and share repurchases. Given our strong balance sheet, excess capital position and high-quality investment portfolio, we are confident that we can continue to be successful and achieve attractive financial results even in more uncertain economic environment. We thank you and appreciate your support and interest in RGA.

And with that, we'll open the call for questions.

Questions and Answers:

Operator

(Operator Instructions) And we'll take our first question from Jimmy Bhullar with JP Morgan.

Jimmy Bhullar -- JP Morgan -- Analyst

Hi. Good morning. I first had a question just on your progress and repricing the group insurance block. I'm assuming you're expecting to generate a profit in 2019, but if you could just give us an idea on when you expect margin to revert to a more normal level? And what's -- that sort of, what's the rough earnings power of that business, once you get to know the margin?

Todd C. Larson -- Senior Executive Vice President and Chief Financial Officer

Hi, Jimmy. Jimmy, no, our remediation efforts and repricing efforts are going as expected. For the US Group business, we're -- we have repriced approximately 75% of that business with fairly good results, and we'll be repricing the remaining part of that over the next couple of quarters or so. We do expect the business to return to profitability in 2019, albeit we won't see really back to full margins until 2020 as all the repricing has a chance to flow through the treaties and so on. So, so far on track, and we're pleased with how it's going.

Jimmy Bhullar -- JP Morgan -- Analyst

And could you quantify like how much of the business has in premiums and what normal margins would be or just give us an idea on what the normal profitability or range of profit -- sort of profit range for that business would be, so we can get an idea on how much earnings in the business have improved over the next couple of years?

Todd C. Larson -- Senior Executive Vice President and Chief Financial Officer

Yes, just in rough numbers. In total, the US Group business is about $600 million in premium. Now the business that was underperforming, if you will, was the excess disability income and the excess medical care lines, which were more like 25% of that total as far as the premiums, so a smaller piece of the overall block. And when that business performs in total, I would say the margins -- it can be volatile, but it was earning $30 million to $40 million a year. So that hopefully gives you some context of where it can get back to.

Jimmy Bhullar -- JP Morgan -- Analyst

Yes. And then just lastly, could you give us some color on the investment losses this quarter and what your exposure is to GE and PG&E?

Todd C. Larson -- Senior Executive Vice President and Chief Financial Officer

Yes, so we did have some investment losses this quarter. Some of it was selling out of some of those credits that you mentioned, specifically GE. We did liquidate down our position. I think we incurred in the neighborhood of about $25 million of losses on those sales. We do have some of the Pacific Gas. I think it's about $65 million in book value, which I think the equivalent market value is about $50 million right now.

Jimmy Bhullar -- JP Morgan -- Analyst

And GE, you are out of the position entirely?

Todd C. Larson -- Senior Executive Vice President and Chief Financial Officer

I think we might have a very, very, very small piece left, but for the most part, they were out.

Jimmy Bhullar -- JP Morgan -- Analyst

Okay. Thank you.

Operator

And our next question comes from Humphrey Lee with Dowling & Partners.

Humphrey Lee -- Dowling & Partners -- Analyst

Good morning, and thank you for taking my questions. I've a question related to Australia. So obviously 2017 it was positive and turning toward the right direction, but looking at 2018, you had three quarters of losses and the other quarter being kind of breakeven. So I was just wondering what was -- what were the drivers for the underperformance in 2018? And what is your near-term expectation for the country?

Todd C. Larson -- Senior Executive Vice President and Chief Financial Officer

Yes. So Humphrey, we were disappointed with the result for Australia this year. As you mentioned, for the full year, we did have a loss. It was primarily driven by the group business in 2018. And if you take a step back, we had been since the repricing efforts started a few years ago, that group business had been profitable over the last few years. But this year on negative due to some higher claims experience. So the main driver of this year was the group line in Australia. For 2019, in all things being considered, sitting here today, I'd say my best guess is that we're around the breakeven result.

Humphrey Lee -- Dowling & Partners -- Analyst

I guess in terms of the higher claims like what is -- what do you see or what did you see in 2018 that is the cause for that higher claims activities?

Todd C. Larson -- Senior Executive Vice President and Chief Financial Officer

Just elevated claims experience across multiple clients. I don't think we attributed to anything real specific, just higher claims activity, which we'll keep a very close eye on as we go forward.

Humphrey Lee -- Dowling & Partners -- Analyst

Got it. And then shifting gear, in EMEA, you definitely have very good performance in multiple quarters now. Like I guess, what is driving that kind of positive variance? And how sustainable is this favorable experience to go for? Like would you have to pass along some of your sort of better margins back to clients at some point? Or do you feel like you have the secret sauce to maintain that kind of strong performance going forward?

Todd C. Larson -- Senior Executive Vice President and Chief Financial Officer

Yes. So on the longevity business in EMEA, especially in the UK has been performing very well. And there's a little bit of noise in there just due to client reporting catch-ups, just our information is only as good as what information our clients report to us. So sometimes we have some catch-ups in particular quarters due to client reporting, but also the underlying longevity experience has been very good for us for the past several quarters, I mean they're just good performing business right now.

Humphrey Lee -- Dowling & Partners -- Analyst

How competitive is that market like other than you guys? Like, who will be the main players in that particular line of business? And just how competitive it is?

Anna Manning -- President and Chief Executive Officer

Humphrey, it's Anna. It is a very competitive market. We have niches that we focus on. So we're looking for particular attributes, particular risk profiles, and we also enjoy the strength of relationships that from repeat type of transactions. But more particular to your question, yes, it is a competitive market and to your earlier question, no, we don't have to give back any margins on existing business. These are all long-term contracts.

Humphrey Lee -- Dowling & Partners -- Analyst

Got it. Thank you for the color.

Operator

And we'll take our next question from Erik Bass with Autonomous Research.

Erik Bass -- Autonomous -- Analyst

Hi. Thank you. I want to follow up on Humphrey's question on Australia. And I guess, in particular, are you seeing any impact from the Royal Commission review and do you think that's having any contribution to the higher claims? Or if not, do you see any risk of that having any issues going forward?

Todd C. Larson -- Senior Executive Vice President and Chief Financial Officer

Yes, the Royal Commission report is due out, last we heard in February of this year, so fairly soon. It's hard to say that there's been any direct impact on claims activity at this point, although I have to believe there's been some indirect impact on the claims activity from the Royal Commission. But it's hard to really pinpoint a direct relationship right now. So again, it's one of those situations that will continue to stay close to and work very close with our clients and see how that develops.

Erik Bass -- Autonomous -- Analyst

Got it. But at this point, is it fair to say that when you see Australia is only mid of an earnings headwind, but there's nothing that's causing you to question reserve adequacy?

Todd C. Larson -- Senior Executive Vice President and Chief Financial Officer

That's right. We're continuously looking at experience studies and making sure that we're comfortable with the overall balance sheet for Australia. So I think that's a good way to characterize it. The way we do it right now, it is certainly an earnings drag, but we don't feel there's any balance -- significant balance sheet issues at this point.

Erik Bass -- Autonomous -- Analyst

Thanks. And then if I could just ask a bigger picture question on US Mortality trends. We've seen some conflicting data points with life expectancy declining slightly for the broader population, but there's also been some important medical advances particularly in the treatment of cancer. So as you look at your book, are you seeing any changes in claims trends? And so it would be reasonable to infer that the insured population is more exposed to the favorable rather than the unfavorable trends we're seeing?

Anna Manning -- President and Chief Executive Officer

Hi. Erik, right?

Erik Bass -- Autonomous -- Analyst

Yes.

Anna Manning -- President and Chief Executive Officer

Yes. So you're absolutely correct. The public data does suggest that there's a slowdown in mortality improvements, but it points to the major part of that being driven by what we call and depths of despair. So think about suicides and opioids. And impacting the younger populations, which don't affect our book as much. So from our perspective, our main causes are cancers and cardiovascular diseases. And there, we remain bullish. We are bullish on long-term mortality improvements. We continue to believe that long-term trends are going to be positive for our business.

Erik Bass -- Autonomous -- Analyst

Thanks. I mean it's bit early I realize, but are you seeing anything in the data in terms of the prescription drugs and some of the advances on cancer having any benefit on your claims there?

Anna Manning -- President and Chief Executive Officer

No, much too early for that.

Erik Bass -- Autonomous -- Analyst

Got it. Okay. Thank you.

Operator

And our next question comes from Kenneth Lee with RBC Capital Markets.

Kenneth Lee -- RBC Capital Markets -- Analyst

Hi. Thanks for taking my question. Wonder if you can give us a little bit more color on the unfavorable Individual Mortality within the US business whether it's in around more severity or frequency? And whether you could perhaps quantify potential impact in the quarter?

Anna Manning -- President and Chief Executive Officer

The claims in the quarters were above our expectations, and we saw somewhat higher average sizes and some additional claim count. But I would say, the -- it was more a severity rather than a frequency event in the fourth quarter. But keep in mind, we had a very strong Q3 and for the full year, our average sizes were pretty much in line. So the way I think about the 2018 performance is the miss was frequency related. And that's not unexpected given that we had that hard winter and the bad flu season.

Kenneth Lee -- RBC Capital Markets -- Analyst

Got you. And just one follow-up on the Australia business. Could you just remind us if there are any ongoing repricing initiatives or any kind of other efforts are ongoing to improve the profitability within that business? And is the expectation of the Australia business could return to profitability sometime next year? Thanks.

Todd C. Larson -- Senior Executive Vice President and Chief Financial Officer

Yes, so we are continuously doing what we can to improve the profitability of the in-force block, including repricing those treaties as they come up for renewal or as we have the ability to reprice. And we're also being, I would say, fairly selective on new business. Our goal in Australia really is to make sure we make the in-force block as profitable as we can. And then, like as I said, be somewhat selective on new business. Can it return to profitability? We sure hope so. As I mentioned earlier, probably for 2019, breakeven result plus or minus, but then as we continue to march forward, hopefully, we'll see that profitability return.

Kenneth Lee -- RBC Capital Markets -- Analyst

Got it. Thank you.

Operator

And our next question comes from Ryan Krueger with KBW.

Ryan Krueger -- Keefe, Bruyette & Woods, Inc. -- Analyst

Hi. Thanks. Good morning. When you look at the US Individual Mortality results for full year 2018, can you give us a sense of how much that deferred from your typical expectation?

Todd C. Larson -- Senior Executive Vice President and Chief Financial Officer

Yes, it's hard to put a fine point on that Ryan, but sort of full year I would say, we're about $30-ish million worse than are, but we would have expected overall.

Ryan Krueger -- Keefe, Bruyette & Woods, Inc. -- Analyst

Got it. Thanks. And then on US Asset-Intensive I think in the past you've talked about a quarterly run rate of $50 million to $55 million of earnings, but you have done some reasonably big transactions now as well to add to that. So I was hoping you could give us an update on what you'd expect in your term given those transactions?

Todd C. Larson -- Senior Executive Vice President and Chief Financial Officer

Yes. No -- yes, we did add some nice transactions recently. Although I would still hold that, that run rate of $50 million to $55 million is still a pretty good number because as we add on some of these newer blocks, you have to remember that these Asset-Intensive blocks, in-force blocks amortize off as well, so we're -- as we're adding the newer blocks it's somewhat offsetting some of the blocks that are running off. So all in, I'd say, the $50 million to $55 million is still a good estimate and also some of the newer blocks as we've mentioned in the past, the way US GAAP accounting works sometimes it takes a little bit to ramp up to full speed on some of the earnings.

Ryan Krueger -- Keefe, Bruyette & Woods, Inc. -- Analyst

Got it. Thank you.

Operator

And we'll take our next question from Andrew Kligerman with Credit Suisse.

Andrew Kligerman -- Credit Suisse -- Analyst

Hey, good morning. Canada Traditional it looks like you put two transactions on and one which was in the fourth quarter. And I'm wondering what the impact on earnings that was? And maybe you could give us a little color on the type of deal it was?

Todd C. Larson -- Senior Executive Vice President and Chief Financial Officer

Yes, Andrew, it was mortality related. So mortality block. And probably not a big impact in the fourth quarter because the effective date of that treaty was in the latter part of the year in the fourth quarter. So it wouldn't have had a real significant impact to the earnings for the quarter.

Andrew Kligerman -- Credit Suisse -- Analyst

And how about going into maybe next year? Any particular -- can you size it earnings wise?

Todd C. Larson -- Senior Executive Vice President and Chief Financial Officer

No, we don't normally do that. But I mean, it was a reasonable size transaction, so it should add earnings as we go into next year or into 2019.

Andrew Kligerman -- Credit Suisse -- Analyst

Okay. When you give the 5% to 8% guidance, should I be considering the $12.16 base that you generated in 2018? Or is there another base we should be thinking about?

Todd C. Larson -- Senior Executive Vice President and Chief Financial Officer

Well, certainly, that's a base to look at. And again, we're looking at earnings over intermediate period of time, not necessarily just year-over-year. And as you've seen in our business, there can be some volatility quarter-to-quarter and year-to-year. So we do look at it over a longer period of time, and try to look at more, I'll call it, normalize results, but just looking at what the true earnings power is of the enterprise. And when we look at our mix of business and what we feel are some pretty good growth prospects, we think the intermediate guidance is what -- where we should be.

Andrew Kligerman -- Credit Suisse -- Analyst

Got you. And then maybe just one last one on APAC. Your earnings seemed kind of lumpy. It came in at $36 million, you've previously guided to $35 million to $40 million, but you mentioned premium catch-ups. How much did that contribute to the earnings?

Todd C. Larson -- Senior Executive Vice President and Chief Financial Officer

Yes, it's hard to put an exact number on that, Andrew. But yes, there is some volatility on the premium amounts, which also impacts our earnings. But also on the earnings you've got just the experience of happening as well. But the best I can provide to you is probably the best run rate on a quarterly basis, excluding Australia, for the near term here is around $40 million on average.

Andrew Kligerman -- Credit Suisse -- Analyst

Got it. Thanks a lot.

Operator

And we'll take our next question from John Nadel with UBS.

John Nadel -- UBS -- Analyst

Good morning. Still -- I understand that the 5% to 8% growth is an intermediate-term and not an individual year sort of target. But if we think about the 7% premium growth I think that's for the full year 2018. And I think that's adjusting for some of the one-time items like the catch-up that was just mentioned. Is there really any reason why bottom line earnings should grow at a pace that is any slower than your premium growth rate?

Todd C. Larson -- Senior Executive Vice President and Chief Financial Officer

Not necessarily. As I mentioned, there's a few moving parts. But again, that 5% to 8%, we feel, is what the business is capable of producing. And we will have that revenue or premium number show some good growth over time as well. But then you also have to take into account what happens with some of the foreign currency rates in our business since a good part of it is outside of the US. So there's some pluses and minuses. But we think that top line growth rate and bottom line growth rate are what our business is capable of.

John Nadel -- UBS -- Analyst

Okay. And then if we think about a lag effect as it relates to alternative investments maybe some limited partnership holdings on the balance sheet that sort of thing. Given the very weak 4Q, what kind of an impact at this point maybe the visibility is not terrific just yet, but how should we think about that as it relates to just sort of the 1Q impact on investment income? I think you guys had mentioned in the release that variable investment income was a little bit above your typical expectation in 4Q?

Todd C. Larson -- Senior Executive Vice President and Chief Financial Officer

Yes. A lot of our variable income comes from some of our real estate JVs and some other partnerships. And we still feel there's some good runway there. So I'm not sure there's a lot more color I can add if I understand your question.

John Nadel -- UBS -- Analyst

Yes, I'm just thinking about the market-related impacts on limited partnerships, but maybe these are a lot less equity-oriented kind of investments, is that fair?

Todd C. Larson -- Senior Executive Vice President and Chief Financial Officer

Yes, ours are probably more related to investment in some underlying properties and some businesses and that type of thing, and not necessarily as correlated to the capital markets per se.

John Nadel -- UBS -- Analyst

Okay. And then if we're thinking about the 5% to 8% intermediate-term, would you encourage us to adjust for the 2018 shortfall on Individual Mortality results in the US or would you not? I'm just sort of thinking about did you see maybe there's $30 million shortfall relative to your typical expectation in US Traditional, but did you offset that effectively during 2018 with some better results for example in EMEA?

Todd C. Larson -- Senior Executive Vice President and Chief Financial Officer

Well, it's -- I would say, use your best shot, because remember we know we had some US Group results that were so off our expectations for the year. We had some lines that are better than what our expectations were. Just given the nature of our business we're going to have these pluses and minuses in the various lines. But I think given the diversity of our business, I think, we've shown over the past few years that when you add it all up in total, we've been able to show that pretty consistent growth rate. So it's sort of hard to give you all the pluses and minuses by business unit because I think they'll continue to be a little bit volatile over time, but in total, the diversity will hang together.

John Nadel -- UBS -- Analyst

Okay. And just last one real quick. Bigger picture and I know you guys talk about the pipeline of potential deal activity being still pretty strong. Any shift in sort of the composition of what you're looking at? And if you could also sort of interject some commentary as it relates to the outlook for Langhorne too?

Anna Manning -- President and Chief Executive Officer

Okay, so I'll take the first question on deal pipeline. No, we're not seeing a shift, we're seeing a pretty steady pipeline and what is particularly pleasing for us to see is that the deals are going across regions, across the risks and across sizes. So for example, we see good deal flow in the US Asset-Intensive business. We expect longevity deals will remain active. And we're also seeing some Asset-Intensive and Financial Reinsurance deals in Asia. So I expect that overall, 2008 (sic) [ 2018 ] from a pipeline perspective, will look very similar to -- oh, I'm sorry, did I say 2008? 2019 will look very similar to 2018. And on the Langhorne question?

Todd C. Larson -- Senior Executive Vice President and Chief Financial Officer

Langhorne, we continue to -- we're deal-ready with Langhorne. We're continuously looking at transactions. Unfortunately, we haven't executed on one yet, but I think, it's just a matter of time before Langhorne will get its first transaction. And as you know, we'll both get a return on the capital that we invest in Langhorne as well as some ongoing fees from sourcing the transactions as well as helping oversee the vehicle itself.

Anna Manning -- President and Chief Executive Officer

Yes. And I would just add that speed isn't our goal with Langhorne. It really isn't. We're keeping full standards. We're going to get a deal done, but we're not going to cut corners to get a deal done. So we want good deals that fit. That's our objective and that's what we're working very hard toward.

John Nadel -- UBS -- Analyst

Thank you.

Operator

And we'll take our next question from Dan Bergman with Citi.

Daniel Bergman -- Citi -- Analyst

Thanks. Good morning. To start just following up on the deal activity question. It sounds like the pipeline is quite strong. But I just wanted to see if there's any update or change in terms of the level of competition for block deals you're seeing? And any particular areas or products that have been especially competitive lately?

Anna Manning -- President and Chief Executive Officer

Yes. So you're not going to be surprised by my answer. Competition is about the same as in prior periods and that is it's pretty strong. It remains strong. What we have seen is a few new entrants, but we've also seen a few leave. So overall, I would say that roughly the same number of competitors, but different on the edges. And those competitors are both the established reinsurers and some of these new reinsurers. I'm sorry, and your -- the second part of your question was?

Daniel Bergman -- Citi -- Analyst

I mean just in terms of thinking between different geographies or products, if there's any kind of differential in terms of particularly competitive areas or if they're maybe little bit less competitive at the moment?

Anna Manning -- President and Chief Executive Officer

Well, I think size is one of the factors that I would say that the larger deals have fewer competitors, but it's pretty competitive at those larger deals. The midsize deals, the level of competition hasn't really changed all that much over the course of the last number of quarters.

Daniel Bergman -- Citi -- Analyst

Got it. Thanks. And then just shifting gears to followup on the EPS growth guidance. Understanding that it's a medium-term expectation. I just wonder to see if it is the 5% to 8% factor and the impact of your recent capital deployment which was pretty elevated in 2018 and heavily weighted to the back half of the year. Or could it kind of short-term growth be little bit stronger just given the -- as that recent capital deployment comes into the earnings base? So any thoughts around how to think about that would be helpful?

Todd C. Larson -- Senior Executive Vice President and Chief Financial Officer

Yes -- no, it really does consider the ongoing capital -- that level of capital deployment into the deals. You're right, we were a little bit higher than normal in 2018 and toward the second part of the year, but it does consider our deployment of capital into those transactions.

Daniel Bergman -- Citi -- Analyst

Got it. It's very helpful. Thank you.

Operator

(Operator Instructions) Our next question comes from Tom Gallagher with Evercore.

Thomas Gallagher -- Evercore ISI -- Analyst

Good morning. Few questions. First is just on the net income volatility, can you give further color what drove that? Was there breakage in terms of the variable annuity block, in terms of hedging, or just some further clarity on that?

Todd C. Larson -- Senior Executive Vice President and Chief Financial Officer

Yes, Tom. Yes, this -- as you mentioned, this quarter there was some volatility or disconnect between net income and operating income. I would say, part of it was some realized capital losses. We had some, as I mentioned earlier, some sales due to some credit concerns and then we also had some repositioning and some of our newer Asset-Intensive transactions that we brought on that we realized some capital losses. And then we had a small amount of impairments for the quarter, I think it was around $18 million in impairments this quarter. And then the second component is the embedded derivatives on our modco treaties or modified coinsurance treaties, that was the negative for the quarter. And then the third probably material piece is what you related -- mentioned is the increase in the reserves on the embedded GMXB living benefit reserve, but that was offset pretty much by hedging derivatives. So there wasn't really any disconnect between the liability on the GMXB and the hedges worked pretty well against those, so there was not any disconnect there.

Thomas Gallagher -- Evercore ISI -- Analyst

And would you say on the net income was that -- would that have been a better barometer of the capital you generated in the quarter? Or was there some noise in the net income line, was the capital generation in the quarter better than implied by your net income performance?

Todd C. Larson -- Senior Executive Vice President and Chief Financial Officer

Well, unfortunately, those things like the embedded derivatives and the GMXB change do go through income into retained earnings, although they can turn around pretty quickly as well. So they did impact capital for the quarter, but those can certainly turn around.

Thomas Gallagher -- Evercore ISI -- Analyst

Got you. And then the -- just a quick one on long-term care. I know your vintages and the quality of your long-term care book is very different than others in the industry, but just curious on how that performance looked this quarter?

Todd C. Larson -- Senior Executive Vice President and Chief Financial Officer

Yes, so as you mentioned our vintage of long-term care is of the newer variety. And I would characterized the performance of that long-term care block not only for the quarter, but for the year right around our expectations.

Thomas Gallagher -- Evercore ISI -- Analyst

Okay. And then some reinsurance competitors of yours have been -- have done pretty significant repricing of in-force blocks, which has led a knock-on effect in primary companies to recapture them in some instances. I think last we discussed it with you, you have not been doing that, but just wanted to see an update on where you stand on this trend, whether that's something you're considering and is that an -- and if you're not doing that, is that more of an opportunity for you?

Anna Manning -- President and Chief Executive Officer

The update is that we remain -- our strategy isn't to pursue those broad-based rate increases that you just described and the recapture activity that goes with that. What we do is very consistent with how we think about our long-term business and the relationship with our clients, is will look at the global relationship with clients broad-based and long term. When and where we see imbalances in those relationships, we'll sit down with clients and we'll work with them to try and bring those back in line. I think, yes, that, that approach can offer up opportunities for us. Certainly, in terms of the strengthening of the relationship, I think, that's been pretty important in how we've looked at this market.

Thomas Gallagher -- Evercore ISI -- Analyst

So Anna, no -- nothing meaningful from a repricing standpoint, is that a fair way to characterize it?

Anna Manning -- President and Chief Executive Officer

Nothing material from a repricing standpoint.

Thomas Gallagher -- Evercore ISI -- Analyst

Okay. Thank you.

Operator

(Operator Instructions) We'll take our next question from Alex Scott with Goldman Sachs.

Alex Scott -- Goldman Sachs -- Analyst

Good morning. I just had a few kind of housekeeping questions to wrap up on here. I guess, the net investment income just when I think about it relative to our estimates, when I think about it relative to kind of the normalization for [ VII ] that you guys calling out last quarter. I guess, it looked a bit low quarter-over-quarter, particularly since some excess capital has been deployed. Just wondering if you could comment anything there that maybe is abnormal when I look at consolidated net investment income and what we should expect kind of heading into '19?

Todd C. Larson -- Senior Executive Vice President and Chief Financial Officer

No, I think the way I look at it, Alex, is that our -- if you look at our, what we call, the core portfolio outside of the Asset-Intensive block, because Asset-Intensive block is pretty well asset liability matched and those hold together as a spread business. But if you look at the core traditional block, I'd say that the investment income was up about 5%, which is about where we would expect. I think if you look at it all-in, there can be some volatility too just due to some of the accounting items that flow through there. Like it could be some of the best way to describe it, but -- some not derivative activity, but just some of the way the accounting works on some of the assets.

Alex Scott -- Goldman Sachs -- Analyst

Okay. And then in the -- I guess just the corporate loss, you called out some of the investing that you're doing, I think in RGAx or maybe the new business that you acquire. So can you help us think about like, how that will trend kind of heading into '19? And will there be a continued investment, whether it's digital or otherwise, that will impact things there compared to I think $20 million our $25 million?

Todd C. Larson -- Senior Executive Vice President and Chief Financial Officer

Yes, at a higher level for the Corporate segment, there's going to be some volatility, I mean, that segment probably quarter-to-quarter, but as I look out over 2019, I would say on average, we expect a loss of about $25 million a quarter in the corporate segment. And as you mentioned, there are some activities in there, one of which is the RGAx activity which we will have some revenue to offset that investment over time as well. So it's a little bit hard to predict, but my best estimate is again, there's going to be some volatility around it, but on average, I think $25 million loss rate for quarter is a good estimate for you to work with.

Alex Scott -- Goldman Sachs -- Analyst

Okay. And then maybe the last one for me. I guess, there's been a couple of notable deals that have kind of come in the life insurance space in the US recently that maybe included a little bit more interest sensitive universal life. Is there any reason that you guys would stay out of this kind of transaction? I mean, are they -- like, how do you view the pricing environment for those type of closed block deals?

Anna Manning -- President and Chief Executive Officer

Yes. We haven't been successful in those type of products, US ULSG type of products. Now where we are successful on those products is reinsuring the mortality risk and leaving the policyholder behavior risks or leaving the investment risk with the FIN (ph). That's part of our in-force block strategy is to look for those opportunities partner maybe with others who might not have the same appetite or would be open to splitting the type of risks and reinsuring the mortality with us and retaining the other parts of the risk. So I would say that that's not at the top of our list in terms of risk return propositions that we've been successful in terms of being able to execute.

Alex Scott -- Goldman Sachs -- Analyst

Okay. Thanks.

Operator

(Operator Instructions) And it appears we have no further questions in the queue at this time. I'd like to turn it back to our presenters for any additional or closing remarks.

Todd C. Larson -- Senior Executive Vice President and Chief Financial Officer

Okay. Well, thank you, everyone for participating on our call today and continued support for RGA. Thank you very much.

Operator

And that does concludes today's conference. Thank you for your participation. You may now disconnect.

Duration: 52 minutes

Call participants:

Todd C. Larson -- Senior Executive Vice President and Chief Financial Officer

Anna Manning -- President and Chief Executive Officer

Jimmy Bhullar -- JP Morgan -- Analyst

Humphrey Lee -- Dowling & Partners -- Analyst

Erik Bass -- Autonomous -- Analyst

Kenneth Lee -- RBC Capital Markets -- Analyst

Ryan Krueger -- Keefe, Bruyette & Woods, Inc. -- Analyst

Andrew Kligerman -- Credit Suisse -- Analyst

John Nadel -- UBS -- Analyst

Daniel Bergman -- Citi -- Analyst

Thomas Gallagher -- Evercore ISI -- Analyst

Alex Scott -- Goldman Sachs -- Analyst

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